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Dyna-Mac Gears Up For Promising Growth

Contributed by Shares Investment

By Ong Qiuying  & Christiana Stephanie

In the International Maritime Associates’ March 2011 report on floating production systems, orders for between 120 and 175 units of floating production systems (FPSOs/FSOs) are expected over the next five years and could generate capital expenditure of US$80 billion to US$115 billion between 2011 and 2016. Elsewhere, the fast depleting oil reserves have forced companies to look for other offshore oil reserves especially in the region of Brazil, Africa, South East Asia and Northern Europe where prospects for floaters are healthy.

Listed on the Mainboard of SGX in March 2011, Dyna-Mac Holdings (Dyna-Mac), a multi-disciplinary specialist service provider to the offshore oil, gas and marine construction industries, is poised to benefit from the potential provided by the oil and gas industry.

Despite the increased uncertainties in global macroeconomic conditions due to the European debt issues, weakening of the US economy and slowdown in demand alongside the twin disasters in Japan, Dyna-Mac has managed to rake in a 29% year-on-year increase in 4Q11 net profit. On a quarterly basis, the company recorded progressive sequential revenue growth of 13.7% to $44.8 million in 4Q11.

Notably, the recorded revenue for FY11 is also higher than the company’s internal projection of $150 million as it had completed two projects ahead of schedule which fetched higher margins contributing to a rise in net margins to 14.8%. The significant results were achieved despite a 23% reduction from FY10’s revenue. The decline in revenue was largely attributable to the slowdown in activities as a result of the implementation of moratorium by the US government in the Gulf of Mexico in April 2010. However, with the drilling activities in the Gulf of Mexico resuming in October 2011, higher revenues could be expected in the future.

Also noteworthy to investors, Dyna-Mac practices progressive revenue recognition which enables it to have a healthier balance sheet by recognising income according to the proportion of completed work for its ongoing projects. This reflects Dyna-Mac’s timely progression on its projects as well as smooths out volatility in its financial statements.

Keeping A Strong Order Book

Dyna-Mac has an established track record, having completed 147 topside modules since 1998. Currently, it has an order book of $117 million, with ongoing projects worth $40.4 million inclusive of projects valued at $18 million awarded by Keppel. The remaining orderbook is made up of new projects consisting of 15 modules to be completed in 2012, which will contribute to the company’s recurring revenue stream till their completion in FY12. In its recent results briefing, the company revealed that it is also actively tendering about $700 million worth of projects in different regions to increase its earnings visibility in the long run.

While competition remains rife in the industry, Dyna-Mac had been able to secure a portion of the market share due to its strong and global customer base. Its strong relationships with long-standing customers such as SBM Offshore, Modec and Bumi Armada provide potential impetus to the securing of more projects moving forward.

Growth Strategies That Support Core Competencies

In addition, there have been some business strategies that Dyna-Mac has undertaken to remain competitive. The company has sent a new business development team to prospect new clients in potential markets and is growing its ad-hoc business to diversify its revenue streams.

To improve its capabilities and tender for a wider range of projects, Dyna-Mac’s plans include the upgrading and expansion of the yard facility at Pandan Crescent and its mainyard facility, expected to complete by end-2011. When completed, the modern yard would raise Dyna-Mac’s capacity substantially, making it a top-tier module fabricator next to global names like McDermott and Saipem. Plans are also on the cards to expand its yard to Bintan to take up local projects and to build waterfront facilities in India to cater to the Indian market. All these will boost Dyna-Mac’s competitive edge over its competitors such as BT Engineering, a subsidiary of Exterran Holdings.

No Longer An Underdog

AmFraser’s report noted that the market-capitalisation-to-order-book ratio for Dyna-Mac stood at 8.2 compared to global peers’ average of 2.1. In addition, the company faces several key risks such as strong global competitors: with recent jobs dominated by Korean companies and difficulties winning Brazillian contracts without a Brazil yard; as well as its pure project-driven revenue that are largely local jobs.

In spite of the above, Dyna-Mac has been performing well above its listed price of $0.35. Following the announcement of its 4Q11 results on 22 July, its share price surged by 6.5% to $0.575. Could the surge be a reflection of the market’s confidence towards Dyna-Mac and its growth prospects?

Backed by its strong net cash position, relatively low gearing ratio of 10%, strong technical capability, large modern yard and long track record, Dyna-Mac, which has proposed final cash dividend of $0.02 a share, is certainly no underdog.